Question: My mother and father are in their late seventies and have decided to raise a lifetime mortgage of £100,000 on their home, which is worth approximately £350,000.
© Malcolm Willett (www.willett-ink.co.uk)
I have a friend whose parents did something similar and there was no money left when they died. I am worried that this will happen to my parents and also that they may be forced out of their home.
Answer: Lifetime mortgages (also known as equity release mortgages) differ from standard mortgages primarily because mortgage interest is not paid each month but added to the loan.
As the loan grows, so do the monthly instalments and the amount owing increases at an ever faster rate. I calculate that with interest at six per cent a year there will be £179,000 owing after 10 years and £240,000 after 15 years. Of course, it is not possible to say what property prices will do in that period.
It is important that any scheme to which your parents subscribe complies with Safe Home Income Plans (SHIP) which includes protection for borrowers, particularly a guarantee that, provided the mortgage conditions are not broken, the home owners may stay in the property as long as they wish - even if the amount of the loan exceeds the value of the property.
These schemes are complicated. You must ensure that your parents receive advice from an independent financial advisor who has an equity release qualification and also from a solicitor who has experience in this area of conveyancing.
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Fiona is a partner in the property team at Thring Townsend Lee & Pembertons Solicitors www.ttuk.com.